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USDCAD: Trading Canada’s Retail Sales Report

USDCAD: Trading Canada’s Retail Sales Report

2012-07-24 05:00:00
David Song, Strategist
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Trading the News: Canada Retail Sales

What’s Expected:

Time of release: 07/23/2012 12:30 GMT, 8:30 EDT

Primary Pair Impact: USDCAD

Expected: 0.5%

Previous: -0.5%

DailyFX Forecast: -0.5% to 0.2%

Why Is This Event Important:

Retail spending in Canada is expected to increase 0.5% after unexpectedly contracting 0.5% in April and the rebound in private sector consumption may prop up the Canadian dollar as it raises the scope for a rate hike. Indeed, Bank of Canada Governor Mark Carney continued to talk up speculation for higher borrowing costs amid the record-rise in household indebtedness, but the central bank may have little choice but to keep the benchmark interest rate at 1.00% throughout the remainder of the year as the slowdown in the global economy dampens the outlook for growth and inflation. Should the retail sales report fall short of market expectations for the second month, a dismal print should weigh on the exchange rate, and the loonie may face additional headwinds over the near-term as the fundamental outlook for the region deteriorates.

Recent Economic Developments

The Upside

Release

Expected

Actual

Consumer Price Index (YoY) (JUN)

1.7%

1.5%

Net Change in Employment (JUN)

5.0K

7.3K

Gross Domestic Product (YoY) (APR)

1.8%

2.0%

The Downside

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (JUN)

57.5

49.0

Manufacturing Sales (MoM) (MAY)

0.6%

-0.4%

Existing Home Sales (MoM) (JUN)

--

-1.3%

Easing price pressures paired with the ongoing improvement in the labor market certainly bodes well for retail sales, and a positive release may spark a bullish reaction in the Canadian dollar as it fuels expectations for a rate hike. However, the slowdown in private sector consumption along with fears of a housing bubble may sap consumer spending, and another decline in sales would drag on the exchange rate as it dampens speculation for higher borrowing costs.

Potential Price Targets For The Release

USDCAD_Trading_Canadas_Retail_Sales_Report_body_ScreenShot082.png, USDCAD: Trading Canada’s Retail Sales Report

As the relative strength index breaks out of the downward trend carried over from the previous month, we may see the bullish flag formation pan out this week, and the pair looks poised to retrace the decline from 1.0445 as it bounces off of trendline support. In turn, the USDCAD appears to have carved out a higher low in July, and we would like a move and close above the 1.0250 figure to see a higher high in the exchange rate. For a complete outlook including scalp targets on the USDCAD ahead of tomorrow's print, refer to Michael Boutros’ Scalp report.

How To Trade This Event Risk

Forecasts for a rebound in retail sales casts a bullish outlook for the loonie, and the market reaction may set the stage for a long Canadian dollar trade should the report fuel expectations for a rate hike. Therefore, if spending increases 0.5% or greater in May, we will need to see a red, five-minute candle following the print to generate a sell entry on two-lots of USDCAD. Once these conditions are fulfilled, we will place the initial stop at the nearby swing high or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its mark in an effort to protect our profits.

However, the recent weakness in private sector consumption paired with expectations for a slower recovery may drag on retail sales, and a dismal development may instill a bearish outlook for the loonie as it dampens the prospects for a rate hike. As a result, if the print falls short of market expectations, we will carry out the same setup for a long dollar-loonie trade as the short position laid out above, just in the opposite direction.

Impact that the Canada Retail Sales report has had on CAD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2011

6/21/2012 12:30 GMT

0.2%

-0.5%

+10

+98

April 2012 Canada Retail Sales

USDCAD_Trading_Canadas_Retail_Sales_Report_body_ScreenShot081.png, USDCAD: Trading Canada’s Retail Sales Report

Household spending unexpectedly weakened 0.5% in April to mark the second decline for 2012, led by a 2.8% drop in demands for clothing and accessories, while discretionary spending on electronics slipped 1.6% during the same period. Indeed, the dismal print dragged on the Canadian dollar, with the USDCAD pushing back above the 1.0200 figure, and the loonie struggled to hold its ground throughout the North American trade as the pair ended the day at 1.0294.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

View the Expo Presentation on ‘Trading the News’ For Additional Resources

Meet the DailyFX team in Las Vegas at the annual FXCM Traders Expo, November 2-4, 2012 at the Rio All Suite Hotel & Casino. For additional information regarding the schedule, workshops and accommodations, visit the FXCM Trading Expo website.

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